H E H NIZAMS RELIGIOUS ENDOWMENT TRUST HYDERABAD Vs. COMMISSIONER OF INCOME TAX ANDHRA PRADESH HYDERABAD

JUDGEMENT

(1.) This appeal by special leave raises the question of the true construction of the provisions of S. 4(3)(i) of the Indian Income-tax Act, 1922, hereinafter called the Act.

(2.) The relevant facts may be briefly stated. By an indenture dated September 14, 1950, H. E. H. the Nizam of Hyderabad created a trust known as "H. E. H. the Nizam's Religious Endowment Trust", hereinafter referred to as the Trust, under which he settled certain securities of the face value of Rs. 40 lakhs for implementing the objects described in the Trust deed Under the Trust deed three trustees were appointed, including the settlor. It will be convenient at this stage to read the relevant provisions of the trust deed.

(3.) Mr. Narasa Raju, learned counsel for the assessee, contended that proviso (a) to S. 4 (3)(i) of the Act would be attracted only when the Trustees exercised their option to apply the income to religious or charitable purposes without the taxable territories, that in the present case the Trustees had not exercised the said option and that, therefore, the assessee's case was directly governed by the substantive part of Cl. (i) of S. 4 (3) of the Act. As the income was being accumulated by the Trustees, the argument proceeded, without setting apart the whole or any part thereof for one or other of the purposes mentioned in the Trust deed, it should be held that the Trustees were accumulating the income for religious or charitable purposes within the taxable territories, since two of the named purposes were admittedly within the taxable territories. He would say that if the Trustees exercised their option to apply the fund for the purposes without the taxable territories, the Income-tax authorities could, in terms of the proviso, include that income in the total income.